FRANKFURT, Dec 6 Metro, the
world's No.4 retailer, issued a profit warning that sent
shockwaves through the sector on Tuesday, saying Christmas
trading had started slowly and the euro zone debt crisis was
undermining consumer confidence.

Shares in the German group, which runs cash and carries,
hypermarkets, electrical goods and department stores, slumped
over 10 percent.

"We feel the resulting consumer restraint across all sales
divisions and national borders," outgoing Chief Executive
Eckhard Cordes said in a statement.

France and Germany are frantically working on a convincing
agreement for how to solve the euro zone debt crisis, which has
been spooking businesses and consumers for months. Ratings
agency Standard & Poor's has warned it may carry out an
unprecedented downgrade of the countries in the region should
leaders fail to deliver in a summit on Friday.

Metro, world number four behind Britain's Tesco,
France's Carrefour and U.S. industry leader Wal-Mart
, said it expected both sales and earnings before
interest, tax and special items to come in below 2010 levels,
should weak Christmas trading continue.

Previously it had forecast earnings growth of at least 5
percent, even without a good Christmas.

A Metro spokesman said shoppers were particularly holding
back on purchases of consumer electronics and clothing, sold
mostly through its MediaMarkt, Saturn and Kaufhof stores.

He said quiet sales last weekend, traditionally the second
week of the Christmas shopping season, had prompted the profit
warning from Metro, which usually waits until January to give
details of Christmas trading.

Bernstein analyst Chris Hogbin said the warning did not
augur well for rivals like Tesco, which reports third-quarter
sales figures on Thursday, and particularly Carrefour, which is
also highly exposed to euro zone countries.

Carrefour declined to comment on Christmas trading.

However, Hogbin said there were good reasons for thinking
Metro was suffering more, because it sells a higher proportion
of discretionary non-food goods, where shoppers are making the
biggest cut backs.

"For Metro, the fourth quarter is disproportionately
important. It's 70 pct of their full year operating profit, and
secondly 50 percent of their business is non food," he said.

CHILL SPREADS TO GERMANY

Carrefour shares were down 5.6 percent, while the STOXX
Europe 600 retail index was the worst performing in
Europe, down 2.2 pct against a 0.4 percent fall in the index of
top European shares.

"The start to Christmas business has so far distinctly
lagged behind the prior year level," Cordes said.

Shoppers across Europe have been reining in spending this
year as they fret about jobs, government spending cuts, rising
prices and, more recently, the euro zone crisis.

Even in Germany, which had seemed more resistant but is now
one of the top-rated countries being threatened with a credit
rating downgrade, retail association HDE reported a quiet start
to the first two weekends of Christmas shopping.

Bankhaus Lampe analyst Christoph Schlienkamp said
Duesseldorf, one of Germany's top retail destinations, was quiet
last weekend.

"The city was not crowded. It seems to be that customers are
staying home and are only buying in small amounts."

Douglas, which sells smaller items such as books,
perfumes and cosmetics, said it was pretty happy with trading in
Germany.

"Sales are within our expectations and we are confident for
the next 2-1/2 weeks up until Christmas Eve, with the most
important days ahead of us," CEO Henning Kreke said in comments
sent to Reuters on Tuesday.

The Metro profit warning adds to the challenges facing
finance chief Olaf Koch, who will take over as CEO on Jan. 1 and
already has his work cut out to repair relations with labour
representatives, oversee a sale of department store chain
Kaufhof and improve the fortunes of the Media-Saturn chain of
consumer electronic stores.

Metro, with over 2,100 outlets in 33 countries, confirmed on
Tuesday it had received a binding offer for Kaufhof from
Austrian investor Rene Benko via his Signa vehicle. Benko said
at the weekend he hoped to agree a deal by Christmas, although
two other parties are interested in the chain.

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